Ofgem on supplier failure costs: “The numbers didn’t stack up”

Alternative ways of recovering the cost of supplier failure could negatively affect vulnerable customers, Ofgem has concluded

Big Zero Report 2022

Ofgem has today announced it will not change the existing way supplier failure costs are recovered from customers through their energy bills.

Last month, the regulator launched a consultation to review the Supplier of Last Resort (SoLR) levy, which is part of the standing charge that consumers pay.

Standing charge is the cost that is applied to energy bills automatically before any gas or electricity is used.

Ofgem sought views on whether the existing fixed charge continued to be appropriate, or if a usage-based alternative would be a more suitable way to recover the significant recent costs of supplier failure.

In recent months, charities and campaigners urged the regulator to ditch ‘discriminatory policies’ on standing charges.

They claimed that the administrative costs of taking on customers from failed energy suppliers, which are loaded on the standing charge element of energy bills, put lives at further risk.

An Ofgem spokesperson said: “Following a review of one part of electricity standing charges covering the cost of supplier failures, we looked long and hard at whether moving the costs from standing charges to usage was the right thing to do, but the numbers just didn’t stack up.

“Our analysis shows it would disproportionately negatively affect some of the most vulnerable consumers who use high amounts of energy and are least able to reduce their use, such as those with disabilities and the elderly, while resulting in minimal savings for those it would benefit – around just £1 a month.

“This remains a worrying time for people across the country and we recognise the challenges many are facing. While this was specifically in relation to recovering SoLR costs, we will continue to keep standing charges under review and consult widely on any possible future changes.”

In response to Ofgem’s decision to keep the cost of failed energy suppliers on the standing charge, fuel poverty charity National Energy Action said: “We are disappointed that Ofgem has made another decision that is detrimental to low-income households in the middle of an energy crisis.

“While we accept Ofgem has made this decision in good faith, this winter, there must be a fair split between the unit rate and standing charge, particularly for the most vulnerable households.”

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